US Capital Partners Reports Increased Demand for Unitranche Loans
Small and lower middle market businesses are increasingly benefiting from unitranche financing solutions, which offer the advantages of speed, simplicity, and certainty of closing.
This year, US Capital Partners, LLC experienced rising demand for “unitranche” loans, which blend senior and mezzanine debt into a single debt facility. Rather than approach a senior lender, typically a bank, and then also one or more additional junior lenders, borrowers with a unitranche structure have a single secured loan facility, in which all the debt is subject to the same terms. US Capital Partners has increasingly been providing such loans for its clients.
Unitranche Solutions for the Small and Lower Middle Market
First created in 2005, unitranche loans were used primarily for middle market transactions, by borrowers with annual EBITDA of up to $50 million and sales of up to $500 million. A deal size of about $100 million was fairy typical. Today, however, this hybrid loan structure is being increasingly used in the small and lower middle market, as traditional bank financing continues to be challenging to close.
Advantages of Unitranche Financing
- One-stop shop for financing. Combining the senior and subordinated debt gives businesses increased access to the resources they need to refinance existing debt, secure working capital, and finance acquisitions and growth. Unitranche financing now provides smaller companies with a viable alternative to traditional bank financing.
- Simplicity. Unitranche structures have a single creditor agreement and single interest rate, and often also a single lender. This provides a streamlined process for ongoing administration and decision-making.
- Reduced risk that the deal will fall apart. With unitranche financing, there is no need for the borrower to mediate inter-creditor agreement negotiations between the senior and junior lenders.
- Speed. Unitranche facilities provide a faster way to borrow, because dealing with multiple lenders takes time, especially if the borrower is negotiating separate first and second lien facilities. This makes a unitranche solution especially suitable for financing acquisitions, where speed is often of utmost importance.
- Savings. Unitranche loans can sometimes produce a lower cost of capital, because the entire loan amortizes over time, not just the senior debt as in a typical senior and mezzanine debt deal.
How US Capital Partners Can Help
The small-business lending marketplace continues to be highly fragmented. Specialty lenders are generally willing to lend only against their favored asset class. Finding the most appropriate mix of financing at the best cost, and then coordinating the different specialty lenders to a successful closing, can be a difficult process. In most cases, US Capital Partners has the ability to provide a single, unitranche loan to vastly simplify the situation.